How much better is the second contract

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Monty Hardy recently rejected a $23,600,000, five-year contract with the Vancouver Seals hockey team. The contract offer called for an immediate signing bonus of $8,850,000 and annual payments of $2,950,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $25,770,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 $2,950,000

Year 2 3,030,000

Year 3 3,110,000

Year 4 3,190,000

Year 5 3,460,000

Year 5 balloon payment 10,030,000

Total $25,770,000

Problem 1: Suppose you are Hardy's agent and you wish to evaluate the two contracts using a required rate of return of 15 percent. In present value terms, how much better is the second contract?

Reference no: EM132765454

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